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Fed officials say tapering ‘may soon be warranted’ and earlier interest hike pencilled in

Federal Reserve officials on Wednesday sent a strong signal that they are almost ready to taper their bond-buying and said they expect to raise interest rates by late 2022, sooner than they had expected in June. 

With inflation “elevated” and the labor market showing improvement, the Fed said that “if progress continues broadly as expected, the committee judges that a moderation in the pace of asset purchases may soon be warranted.”

The Fed has been buying $80 billion worth of Treasurys and $40 billion worth of mortgage-backed securities each month since last summer to keep long-term interest rates low and spur demand.

Since the summer, the Fed has been talking about slowing down the purchases. The central bank has been guarded, worried there could be a repeat of the “taper tantrum” that roiled global financial markets in 2013.

The formal announcement could come at the November 2-3 meeting or December 14-15, economists said. 

At the start of his press conference, Fed Chairman Jerome Powell said the announcement could come in November.

He said Fed officials think its appropriate for the tapering program to be gradual and end “around the middle of next year.

In updated projections, the Fed also penciled three interest rate hikes in 2023 and three more in 2024, bringing the benchmark interest rate up to 1.8% by the end of the period.

U.S. stocks
DJIA,
+1.06%

gained and the benchmark 10 year bond yield
TMUBMUSD10Y,
1.326%

edged higher after the statement from the Fed.

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